Spectranetics ‘optimistic’ after legal troubles, financial losses

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After years of legal wrangling, indictments and raids by the federal government, Spectranetics is finally hoping to reorganize, regroup and regain market share.

The restructuring comes as its CEO, president and chairman of the board, Emile Geisenheimer, retires, and as Spectranetics stock this week reached a 52-week low of $4.73 a share.

Spectranetics stock has plunged 13.7 percent in the past month. Its lead competitors, Medical Action Industries and Medtronic, have seen their stocks rise 8.75 percent and 5.2 percent during the same period.

Spectranetics, one of the handful of publicly traded companies headquartered in the Springs, has cut administrative costs by 4 percent, and lopped 2 percent from research and development, a department that has been cut by $1.6 million since last year.

Also, 14 sales people have lost their jobs as the company struggles to become more competitive. Spectranetics agreed to pay those workers $700,000 in severance.

It now has 43 territory sales representatives, 17 clinical specialists and seven sales managers.

They’ll have their hands full.

The vascular intervention segment of company sales — one the largest parts of its business — decreased 6 percent in the third quarter, with revenue of $14.6 million. Also, the company was forced to recall a product, QuickCat, an extraction catheter, for production defects in July. That recall negatively affected revenue in its thrombectomy business, which decreased 19 percent since the third quarter of last year.

Adding to the company’s financial troubles, it had to write off $900,000 for an in-house sterilizer installed in its lab in Colorado Springs. One of the gases used to sterilize equipment will be banned by 2015 under new federal rules.

That wasn’t all. Spectranetics earlier this year settled lawsuits with the federal government over the illegal import of medical devices. Three executives were indicted for conspiracy to defraud the federal government, lying to investigators and import violations.

The company is projecting that it will spend $6.5 million to defend former CEO John Schulte, former vice president of business development Larry Adhigije and business development manager Trung Pham against the charges.

CFO Guy Childs said the costs could be higher if the three aren’t tried together or if the case drags beyond 2011.

That’s not inconsequential for a company with annual revenues of $100 million or less.

Despite its rocky past, Childs said he remains “optimistic regarding the future growth potential of this business,” according to transcripts of an investor conference call on seekingalpha.com, which tracks stock market opinion and analysis.

The company’s profits were up during the third quarter, though only by a mere 3 percent. Its losses were also up, climbing to $12.7 million, compared with a loss of $2.5 million in the same quarter of 2009.

But company officials believe that the “hard work” is behind them.

“There has been an ongoing focus in the company about managing day-to-day costs, travel expenses, things of that nature,” Childs told the investors. “And I think we’ve done that hard work. … There has just been a substantial amount of resources that have been tied up on site consolidation and compliance-related activities, and we’re now turning the page on those activities, using those existing resources to drive things that will encourage revenue growth.”

Looking ahead, the company plans to launch new vascular intervention products next year, as well as new products in its better-performing cardiovascular lead-management division.

“We plan to have a couple of them launched in the second half of next year, closer to the end of next year, so there will be some contribution (to revenue),” Shahriar Matin, senior vice president of operations, predicted.

But even that optimism was guarded.

“I would not count on too much,” she said. “Much of the upside will be as we go into 2012 with our new products.”

New board members

Two new Spectranetics board members were appointed this week as the company strives to put its tumultuous times behind it.

Maria Sainz is currently president and CEO of Concentric Medical, a privately held company that manufactures and markets minimally invasive devices that are used to remove blood clots in the brain that cause ischemic stroke. She’s worked in executive positions within the cardiac rhythm management, cardiac surgery and vascular intervention divisions of Eli Lilly’s medical device businesses and Guidant Corp.

Daniel A. Pelak is the senior advisor to the private equity firm Welsh, Carson, Anderson and Stowe. He previously served as president and CEO of Closure Medical Corp., a publicly held medical tissue adhesives company that was sold to Johnson & Johnson in 2005. He also has worked at Medtronic, where he served as vice president of cardiovascular marketing.